Insider Q&A: Market stability in uncertain times

It's a topsy-turvy time around the globe and normally, that would take a toll on major markets. Yet it has been surprisingly calm of late, particularly in the U.S.

John Vail, chief global strategist at Nikko Asset Management and expert on global markets, talked to The Associated Press for his take on the unusual state of affairs in global markets. Vail also heads up the investment strategy group for the firm, one of Asia's largest asset managers.

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Q. You talk to people around the globe, what is the perception of our new president and what is going on in Washington?

A. I have to steer a little bit away from making political commentary. But I'd say foreign countries, on average, have the same sort of bewildered division about the US situation. There are some people in Thailand who think Trump might have some good points and there are some who might think it's bad news, just like we do in our country

There are some countries that are more worried than others. European countries are the most worried I'd say.

China, there's a very strange dynamic there, isn't there? There's a bromance of sort between President Xi and Trump. They seem to want to get along with each other for various reasons and the Chinese press has not been very negative on Trump, as far as I can tell. Whereas, in other countries, the press is more free and there is quite a lot more anti-Trump sentiment.

Japan also has an interesting dynamic, there's some negative coverage of Trump in the media, but I think the Japanese know they have a good thing with Abe and Trump. He (Trump) is more concerned about China and other countries in his trade point of view.

Q. Some investors seem less concerned about the global economy and political risks than others. Why is that?

A. The people who invest in markets have learned over the years that one should not put too much emphasis on geopolitical risk. Maybe that is a lesson they will be sorry to have followed at some point, who knows. But for the meantime, people think there's going to be a resolution of the North Korean situation.

And for U.S. politics, even if nothing gets done in Congress that is okay. Markets are quite happy with gridlock. Especially if the situation is a good one in the macro-economy.

Q. The market has shown little reaction to the Federal Reserve paring back its bond investments. Are they underappreciating the Fed or is this a source for potential volatility in the future?

A. Yes, it's a source of potential volatility not only in the states, but in Europe.

We are in a very high level of surprise potential volatility, perhaps the highest we've been in the entire global cycle. Where we've got an economy that is growing very quickly and you've got the biggest central bank running off and one that is about to start to taper and another one, the Bank of Japan, that has to start considering doing less.

Q. What keeps you up at night?

A. To me, it's geopolitics. That is the thing I spend most of my time on. I spend about 40 percent of my time on risk. So, unfortunately, I read that stuff too much and I get a lot of the skinny from a lot of people and there are a lot of dangerous things going on.

In some cases it has been dangerous for a while and nothing has happened, like the Ukraine — where it has been a powder keg for years now and nothing has happened. And Syria is an example of a potential super power conflict and North Korea, another different kind of potential super power conflict.